Prepared for CENTER CITY CHARLOTTE Charlotte Center City Partners RETAIL MARKET November, 2007 ASSESSMENT: Creating Opportunities for An Evolving Retail Mix Blount Hunter H. Blount Hunter Retail & Real Estate Research Co. John Chapman Chapman Consulting Frank Warren Warren & Associates 512 Colonial Avenue Norfolk, VA 23507 757.626.0757 FOREWORD Center City Charlotte is poised to reclaim “retailing” as one of its important functions. While the clock cannot be turned back to the era in which Center City was the region’s primary shopping destination, Center City’s retail development opportunity stems from its remarkable evolution into a vibrant mixed-use district and the center of activity for an extended region. Center City’s emergence as the area’s dominant employment center and entertainment zone and its evolution as a residential neighborhood support the goal of adding a broad component of shoppers’ goods to the existing base of convenience retail and restaurants. This study was undertaken to diagnose the reasons for this and chart a course for the future. The report begins with an evaluation of the competitive retail landscape and continues with an analysis of sources of market demand for “shoppers’ goods” in Center City and concludes that market conditions are right for a retail initiative in the central core of Center City. This specific sub-area of Center City was selected as the “study area” for evaluation because it offers the greatest potential for becoming the key “crossroads” where virtually all patron groups can intersect. The report presents short-term and long-tern retail development strategies and goals for the future with recommendations for implementation. Retailers naturally gravitate to locations where they perceive a market for their goods or to sites they believe will attract sufficient traffic to support required levels of sales. Center City’s successes in office and residential development and its emergence as the region’s central gathering spot for entertainment, cultural activities, dining, sports, conventions, and community events make retail development in Center City more plausible now than at any time in recent decades. Making Center City’s consumer market visible to retailers and communicating the consumer spending potential of multiple customer segments are important steps in stimulating additional retailing in Center City. Blount Hunter H. Blount Hunter Retail & Real Estate Research Co. November, 2007 1 NOTES TO THE READER Several explanations and definitions are required to assist the reader in understanding the meaning of the projections contained in this report. Geographic Definition of “Study Area” The portion of Center City evaluated in this analysis represents the central core of Center City Charlotte. The study area extends along Tryon Street from The Green to 9th Street and along Trade Street from Church to College. Overstreet Mall/Founders Hall is located within this study area. It is this portion of Center City that has the greatest potential to become a central “crossroads” where virtually all patrons and customer segments intersect. Tapping into the spending potential of all customer segments is necessary for achieving the sales and projected levels of supportable square footages of “shoppers’ goods”/restaurant space incorporated in this report. “Shoppers’ Goods” Retail Merchandise The purpose of this analysis was to address Center City’s ability to attract retailers offering “shoppers’ goods” merchandise. “Shoppers’ goods” represents the type of articles a consumer might shop for, and purchase, in a department store or regional shopping mall. “Shoppers’ goods” merchandise includes apparel and shoes, jewelry, cosmetics, books, stationary and gifts, as well as many goods for the home. A comprehensive listing of “shoppers’ goods” can be found on page 32 of this report. In contrast “convenience goods” represents items often purchased on a highly repetitive basis without benefit of cross-shopping or comparison. Groceries, health and beauty products, greeting cards, and other incidentals would be included in the “convenience goods” category. Another category of retail goods that may be important to Center City Charlotte is art and antiques. These items are not technically included within the definition “shoppers’ goods” because these purchases are not universal nor are they predictable in terms of repeat purchasing behavior, so any space allocated to this merchandise is not included in the projections of supportable square footage in this report. “Entertainment” spending on movies, recreation, museums, sporting events, and other forms of experience is not incorporated in the projections in this analysis. 2 “Spending Capacity” “Spending capacity” is the estimated or projected spending potential of Center City patrons. “Spending capacity” reflects key assumptions about spending level as described in each scenario. “Spending capacity” reflects aggregate spending potential before a “capture rate” is applied. “Untapped Potential” “Untapped potential” reflects the difference between “spending capacity” and “actual sales.” A 25 percent “capture rate” has applied to “untapped potential” in calculating “supportable square footage.” “Supportable Square Footage” This report uses the term “supportable square footage” to describe the amount of space that can be “supported” by Center City patrons subject to key assumptions. “Supportable square footage” reflects the amount of space that results from the following calculation: “Untapped spending potential” X “Capture Rate” $350 PSF Sales Productivity The use of a constant level of “sales productivity” across the time span from 2006 to 2020 isolates the incremental square footage without accounting for inflation. Spending factors used to generate measures of “untapped spending potential” in future years are also stated in constant dollars. The amount of incremental “supportable square footage” is unlikely to change if similar inflation factors are applied to spending levels and sales productivity. The selection of the sales productivity factor directly impacts the amount of “supportable square footage” that is recommended for Center City. The recommendations in this report can be manipulated by selecting an artificially low or an unrealistically high level of sales productivity to be used in calculating “supportable square footage.” The use of $350 per square foot sales productivity for calculating “supportable square footage” is best defended as an average level of sales productivity reflecting the mix of merchants that is likely to be attracted to Center City: independent merchants as well as national chain retailers, a mix of store sizes, a mix of food uses ranging from small fast food operations to large sit-down restaurants. In the shopping center industry, an average regional mall generated sales productivity of $350 per square foot as of 2006. 3 TABLE OF CONTENTS PAGE FOREWORD……………………………………………………………………....... 1 NOTES TO THE READER………………………………………………………… 3 BACKGROUND……………………………………………………………………... 6 EXECUTIVE SUMMARY………………………………………………………....... 8 RECOMMENDATIONS…………………………………………………………….. 16 Competitive Retail Market Evaluation…………………………………............ 20 Sources of Market Support for Center City Retail Development…............ 33 Center City’s 2006 Retail Space Inventory……………………………........... 58 Center City’s 2006 Retail and Restaurant Sales………………………….…. 60 Center City’s Capacity for Retail and Restaurant Sales—2006…………… 61 Center City’s Capacity for Retail and Restaurant Sales—2011…………… 65 Center City’s Capacity for Retail and Restaurant Sales—2020…………… 68 2020 Vision for Center City Retailing…………………………………….......... 77 Illustrative Merchandise Categories and Tenants…………………………… 80 Implementation Strategy…………………………………………………............ 82 Application of Basic Retail Site Selection Principles to Center City…….. 89 Potential Site for Center City Retail Development…………………………… 91 APPENDIX…………………………………………………………………………… 95 Fundamentals of Retailing……………………………………………………… 96 Charlotte’s Retail/Dining/Entertainment Niches……………………………… 100 Analog Downtowns……………………………………………………………… 118 Uptown Charlotte 2007 Perception and Use Survey………………………… 131 4 BACKGROUND, EXECUTIVE SUMMARY, AND RECOMMENDATIONS 5 BACKGROUND Charlotte was founded in 1755 at the intersection of two Native American trading paths. Today these roads are known as Trade and Tryon streets, and the intersection is called “The Square.” Charlotte’s growth has been tied to commerce— from cotton to global financial services. Through years of change, Center City has remained the center of business activity in Charlotte. Until the 1960s, Center City was the dominant retail center for Charlotte and environs. Department stores remained active in Center City long after the opening of suburban shopping malls. Ultimately, the departure of department stores signaled Center City’s demise as a “shopping destination.” The banking boom of the 1970s and 1980s brought thousands of office employees to Center City. The Overstreet Mall system was conceived as a weather-proof and convenient means for employees to walk between buildings and to access parking garages. The unintended consequence of the sprawling Overstreet Mall system was its elimination of pedestrian activity on city streets. Not originally intended as a shopping mall, the Overstreet Mall lacked (and continues to lack) proper space configurations for contemporary retailers. This system shifted pedestrian activity from streets lined with traditional retail